Here will go through advantages of the CFD trading and costs in the CFD trading. Transaction costs will include interest for the long positions held overnight, brokerage or commissions, and any of the slippage you might encounter in case you trade stock CFDs, which are not liquid.
Thus now, we will work through CFD trade.
By doing that, we will appreciate effect of the leverage on trading results, as well as see clearly how you can calculate costs in the CFD trade.
First let us assume a few position sizing rules.
Let us say that float that is available $10 000 cash and say that CFD supplier has 10 – 1 leverage, making leveraged float $100 000. Also say that we are using fixed trade size kind of position sizing model and for that, we put in fixed amount, $10 000 in every CFD position.
So let us think that we get in trade, and that trade goes in our direction that is up.
After that, some days later, trade is going all right, and let us say that CFD price is at present $5.90. According to our rules, it is time to move trailing stop to $5.65.
Then, trade goes all along for some more days, and after that CFD price goes up to $6.32 and again, let us say according to our rules, we move our trailing stop up to $6.20.
Finally CFD price goes down through our trailing stop-loss of around $6.20, thus getting us out of trade at $6.20, and assuming no slippage, since this was CFD, which had decent sum of liquidity.
Total duration of the trade was fourteen days that includes both entry & exit days.
So difference between entry & exit prices is $6.20 – $5.70 that is $0.50.
Our profit for all this trade is thus = (difference between entry & exit price) multiply (number of CFDs), equal to 0.50 x 1754, that comes to $877.
To work out for net profit, we will have to calculate all our transaction expense and after that take that away from gross profit.
Let us say our CFD commission is saying $15 every way, or else 0.15% of trade size, either is greater. In trade that we have described above, where trade size was around $10 000, and our total commission will be $15 times 2 that comes to $30.